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It's Two, Two, Two Flops in One Merging a cell phone and a videogame console seemed like a pretty good idea. But Nokia's latest product is turning into a head scratcher.

By Matthew Maier

January 1, 2004

(Business 2.0) – When Nokia launched the N-Gage in October, company executives proclaimed it "the biggest innovation in gaming since the joystick." While the market wasn't exactly screaming for a phone that plays games, there are roughly 131 million gamers in the United States alone, and Nokia boldly predicted that it could sell 6 million of its combo phones during the next 24 months. What's not to like about a Bluetooth-enabled, Web-browsing, MP3-playing cell phone that also happens to double (or quadruple) as a gaming platform?

Plenty, as it turns out: Gamers hate the thing. They complain about its slow frame rates, small screen, and limited--as in only eight titles at launch--library of games. "Among the gaming audience, the N-Gage has absolutely no credibility," says Dave Kosak, executive editor at GameSpy, an industry publication. "They don't consider it a viable platform at all." They have remained unimpressed despite a $100 million advertising blitz for the odd-duck device. With another $100 million already sunk into development, the N-Gage is shaping up to be one of 2003's biggest consumer-electronics flops.

Nokia vehemently disputes that characterization. "By combining mobility with gaming, the N-Gage has been as strong a console launch as any the industry has ever seen," says Nada Usina, a Nokia general manager and the self-proclaimed "head chick of N-Gage in the Americas." She says that more than 400,000 units were shipped to Nokia's wireless carriers and retailers in the first month.

Shipped, of course, isn't the same as sold, and retailers as well as analysts say the N-Gage simply isn't selling. Jeff Griffiths, CEO of games retailer Electronics Boutique, went so far as to blame the device for his company's weak earnings. NPD Group, a market research firm, claims that retailers in the United States sold fewer than 10,000 N-Gages in the first month. Nintendo's Game Boy Advance, by comparison, sold well over 540,000 units during the first week of its introduction in 2001. "The N-Gage's obituary has already been written," crows George Harrison, Nintendo's vice president for marketing.

Of course, it's possible that the game phone simply needs more time to catch on. While camera phones were initially met with consumer skepticism, they have since proved a hit. But Nokia and others sold those units from a position of strength, as phones. It chose to market this all-in-one as a game console, targeting hard-core thumb jockeys, though it knew little about the volatile industry. "Most gaming platforms end up getting smoked," notes Mitch Lasky, CEO of Los Angeles-based Jamdat Mobile, a maker of downloadable games for cell phones. "Like trying to hit a Randy Johnson fastball, it's a whole hell of a lot harder than it looks."

Nokia's first strike was pricing. At $300, the handheld N-Gage cost as much as the Sony PlayStation or Microsoft Xbox and more than many high-end cell phones. Nokia said the N-Gage's extras, such as its FM radio and MP3 player, justified the price. But gamers still saw it as an expensive phone replacement, not a game console. So some retailers dropped the price of the N-Gage by $100 within the first two weeks. And three weeks later, after an avalanche of negative reviews, Nokia dropped it even more by throwing in $100 worth of free games. The price is now effectively on par with that of the latest Game Boy, which, admittedly, is not a phone.

Still, there are more than 500 titles for the Game Boy. So far, only 16 games are available for the N-Gage, including such hoary chestnuts as Tomb Raider and Super Monkey Ball. Despite Nokia's size--$36 billion in revenue last year--major game developers like Electronic Arts, THQ, and Eidos simply wouldn't build games until Nokia resorted to writing fat checks in the range of $250,000 to $1 million per title. (The typical industry practice is for the game maker to pay a royalty to the machine maker.)

Nokia promises that the N-Gage will have 80 to 100 titles available by the end of the year. Yet some observers say the damage is already done: "The single biggest thing Nokia did wrong was failing to line up adequate third-party software support," says Michael Pachter, an analyst with Wedbush Morgan Securities. "Content drives the hardware purchase. That's just basic business school knowledge."

The N-Gage developers flunked Design 101 too, critics say. Nokia signed off on a model that requires gamers to remove the back of the device and pull out the battery to swap in a game card. Even some Nokia employees were left scratching their heads by that decision. "We're not really sure how that one got off the drawing board," admits Nokia spokeswoman Laurie Armstrong. Even worse, the device makes gamers--typically a self-conscious lot--feel like dorks: To use the phone, they have to hold it sideways against their heads, as if talking into a taco. Users look so ridiculous that some created websites like www.sidetalkin.com, which displays pictures of perplexed people trying to talk into all manner of ungainly hardware, from Roland 808 synthesizers to Atari 2600s.

None of this should have surprised Nokia executives. Long before its launch, the company showed off the device at trade shows. Without fail it became an object of ridicule. "The N-Gage is a fascinating device, but it's also horribly flawed," said a reviewer from GamesIndustry.biz. "There are much better phones and much better handheld game platforms out there." Nokia heard the critics but stayed the course. "At some point you have to say enough is enough," says Tom Nyberg, Nokia's head of product management for N-Gage in the Americas. "If we wanted to get everything just right, it wouldn't have been ready in time for my grandchildren to play with it."

No one thinks the company, sitting on $11 billion in cash, will give up on the category. Sony recently signaled it wants to get into mobile gaming, and at the first sign of success, others are sure to follow. Nokia execs seem prepared for a lengthy battle. "We've spent a long time looking at the space," says Nokia's Usina. "We're here to stay." Perhaps, if they start to listen.